Macroeconomics: Chapter 7, 2.1, 17, 18
In March 2021, the exchange rate between the Japanese yen and the U.S. dollar expressed in terms of yen per dollar was ¥108.70 = $1. The exchange rate expressed in terms of dollars per yen is ______ dollars per yen. (Enter your response rounded to four decimal places.)
0.0092
In March 2021, the exchange rate between the Japanese yen and the U.S. dollar expressed in terms of yen per dollar was ¥108.70 = $1. The exchange rate expressed in terms of dollars per yen is _______ dollars per yen. (Enter your response rounded to four decimal places.) Suppose that the exchange rate between the dollar and the euro was €0.830 per dollar in June 2021 and €0.850 per dollar in September 2021. From June 2021 to September 2021, the euro A. depreciated against the dollar because more euros are needed to purchase one dollar. B. appreciated against the dollar because more euros are needed to purchase one dollar. C. appreciated against the dollar because fewer euros are needed to purchase one dollar. D. depreciated against the dollar because fewer euros are needed to purchase one dollar.
0.0092 ; A. depreciated against the dollar because more euros are needed to purchase one dollar.
A car costs $25,000 in the United States and 3,000,000 yen in Japan. The exchange rate is $1 = 102 yen. The purchasing power parity of the dollar is ______ yen
120
In 2018, domestic investment in a country was 14.2 percent of GDP, and the country's national saving was 27.2 percent of GDP. The country's net foreign investment was _______ percent of GDP.
13.0
In June 2021, the exchange rate between the Japanese yen and the U.S. dollar was ¥110.11= $1 and the exchange rate between the British pound and the U.S. dollar was £0.71 = $1. The exchange rate between the yen and the pound was _______ yen per pound. The exchange rate between the yen and dollar in July 2021 was ¥110.21= $1. Compared to the June 2021 exchange rate, the dollar ________ against the yen. The exchange rate between the pound and dollar in July 2021 was £0.72 = $1. Compared to the June 2021 exchange rate, the dollar ________ against the pound. When the exchange rate between the yen and dollar becomes ¥110.21 = $1 and the exchange rate between the pound and dollar becomes £0.72 = $1 in July 2021, then, compared to June 2021, the yen has ________ against the pound.
155.08 ; appreciated ; appreciated ; appreciated
Ron was vacationing in France, when his camera was stolen. As he walked into a camera store, Ron noticed that camera prices were in euros. If Ron was willing to pay $275 for a new digital camera and the exchange rate is $1.50 per euro, how much will Ron be paying in euros? Ron will be paying _______ euros for the camera.
183.33
Consumption: $ 1600 Government spending: $400 Taxes: $100 Net Exports: $-300 Investment: $300 GDP: $2,000 private saving is: $ public saving is: $ national saving is: $
300 ; -300 ; 0
In 2018, domestic investment in a country was 17.6 percent of GDP, and the country's national saving was 22.4 percent of GDP. The country's net foreign investment was _____ percent of GDP
4.8
Consumption: $1100 Government spending: $400 Taxes: $100 Net Exports: $-200 Investment: $400 GDP: $1,700 Private saving is: $_____ Public saving is: $_____ National saving is: $____ (Round your solution to the nearest whole number. Be sure to include a negative sign if necessary.)
500 ; -300 ; 200
What is the real exchange rate if the exchange rate between the U.S. dollar and the yen is $1 = ¥100, the price level in the United States is 90, and the price level in Japan is 100? A. 90 B. 90.90 C. 110 D. 121
A. 90
If net foreign investment in the United States is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.) A. Domestic investment must be less than national saving. B. Domestic investment can be greater than or less than national saving. C. Domestic investment and national saving must also be positive. D. Domestic investment must be greater than national saving.
A. Domestic investment must be less than national saving.
If the United States has a net export deficit, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.) A. Net foreign investment must be negative as well. B. Domestic public saving must be less than net foreign investment. C. Domestic private saving must be less than net foreign investment. D. The balance on the financial account must equal the balance on the current account.
A. Net foreign investment must be negative as well.
The Economist magazine observed the following: "In Argentina, many loans were taken out in dollars: this had catastrophic consequences for borrowers once the peg collapsed." Why was this catastrophic for borrowers in Argentina who had taken out dollar loans? A. Repaying the loans would now cost significantly more since the value of the peso had fallen. B. There would be no loans available after the peg ended. C. Lenders would automatically call in loans since the peso had depreciated. D. The price of imported goods would rise in Argentina, which is bad for borrowers.
A. Repaying the loans would now cost significantly more since the value of the peso had fallen.
A political commentator makes the following statement: "The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Bolivia have nothing to gain from international trade based on comparative advantage." Is the commentator correct or incorrect? A. The commentator is incorrect. B. The commentator is correct.
A. The commentator is incorrect.
As a result of the effect of the sugar quota, the U.S. price of sugar is higher than the world price of sugar. A. True B. False
A. True
When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, Milton Friedman, a Nobel Prize-winning economist, made the following comment: "The consumer will be forced to spend several extra dollars to subsidize the producers [of these goods] by one dollar. A straight handout would be far cheaper." Would a quota result in consumers paying a higher price than the price before the quota was imposed? A. Yes B. No
A. Yes
When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, Milton Friedman, a Nobel Prize-winning economist, made the following comment: "The consumer will be forced to spend several extra dollars to subsidize the producers [of these goods] by one dollar. A straight handout would be far cheaper." Would a "straight handout" be cheaper than a quota?
A. Yes
According to Lucas and Sargent, workers and firms have rational expectations, and therefore if the Fed pursues an expansionary monetary policy: A. agents will immediately adjust their expectations of inflation up. B. agents will cause a decrease in the natural rate of unemployment. C. agents will cause an increase in the natural rate of unemployment. D. agents will not change their expectations.
A. agents will immediately adjust their expectations of inflation up.
Suppose the government of the United States runs a budget deficit. This will result in: A. an increase in interest rates in the United States and an increase in the value of the U.S. dollar relative to other currencies. B. a decrease in interest rates in the United States and an increase in the value of the U.S. dollar relative to other currencies. C. a decrease in interest rates in the United States and a decrease in the value of the U.S. dollar relative to other currencies. D. an increase in interest rates in the United States and a decrease in the value of the U.S. dollar relative to other currencies.
A. an increase in interest rates in the United States and an increase in the value of the U.S. dollar relative to other currencies.
An article in GulfNews.com noted that in September 2012 the Indian government of Prime Minister Manmohan Singh made"urgently needed reforms to reduce the fiscal deficit and attract foreign investment to help the current account deficit and growth." Attracting foreign investment can help India's economic growth because it A. brings in foreign expertise and money to help India modernize its economy. B. increases the number of American jobs offshored to India. C. raises interest rates which make it easier to finance the current account deficit. D. decreases the amount of work the Indians have to do to grow their economy.
A. brings in foreign expertise and money to help India modernize its economy.
Since the United States has negative net foreign investment, its A. domestic saving must be less than its domestic investment. B. domestic investment must be less than its domestic saving. C. net capital flow must be negative. D. exports must be greater than its imports.
A. domestic saving must be less than its domestic investment.
Both interest rate and exchange rate will be increased by A. expansionary fiscal policy and contractionary monetary policy. B. expansionary monetary policy and contractionary fiscal policy. C. expansionary monetary policy and contractionary monetary policy. D. expansionary fiscal policy and contractionary fiscal policy.
A. expansionary fiscal policy and contractionary monetary policy.
An article in GulfNews.com noted that in September 2012 the Indian government of Prime Minister Manmohan Singh made"urgently needed reforms to reduce the fiscal deficit and attract foreign investment to help the current account deficit and growth." When India's central bank refers to "risky and volatile flows" that finance their current account deficit, this A. implies that foreign direct investment is volatile. B. means that interest rates fluctuate unpredictably. C. implies that foreign investors cannot be trusted. D. means that consumer spending fluctuates unpredictably.
A. implies that foreign direct investment is volatile.
While running for president, Barack Obama made the following statement: "Well, look, people don't want a cheaper T-shirt if they're losing a job in the process." What did Obama mean by the phrase "losing a job in the process"? Obama was suggesting that a job would be lost if the T-shirt were cheaper because A. it would be produced in another country. B. there would be no international trade. C. the firm producing the shirt would go out of business. D. firms making dress shirts would go out of business. E. it would require the U.S. government to impose trade restrictions.
A. it would be produced in another country.
The difference between net exports and the current account balance is A. net exports is a subcategory of the current account balance. B. net exports plus net capital flows is equal to the current account balance. C. nothing; they are the same. D. net exports measures the flow of goods; the current account balance measures the flow of capital.
A. net exports is a subcategory of the current account balance.
An article in GulfNews.com noted that in September 2012 the Indian government of Prime Minister Manmohan Singh made"urgently needed reforms to reduce the fiscal deficit and attract foreign investment to help the current account deficit and growth." The risky and volatile flows could threaten India's macroeconomic stability because A. sudden changes in foreign direct investment have signficant economic impacts. B. a swing in flows could increase nationalistic tensions against ex-colonial powers. C. of unpredictable changes that result in inflation. D. of unpredictable changes that result in more debt.
A. sudden changes in foreign direct investment have signficant economic impacts.
The federal budget deficit and the trade balance are often referred to as the A. twin deficits. B. national debt. C. balance of payments. D. dueling depreciators.
A. twin deficits.
Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy. A. weaker; closed; stronger; closed B. weaker; open; weaker; open C. stronger; closed; weaker; open D. stronger; open; weaker; closed
A. weaker; closed; stronger; closed
An article in the New Yorker magazine states, "the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But...the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries." Explain how it is possible that middle- and lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade. It would be possible for middle- and lower-income Americans to be both the biggest losers and at the same time the biggest winners from free trade if they are the ones most likely to A. work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries. B. work in industries that produce at higher total cost than do other countries and purchase those goods that can be produced at lower total cost in other countries. C. work in industries that do not have a comparative advantage and purchase those goods in which the United States has a comparative advantage. D. work in industries that have a comparative advantage and purchase those goods in which other countries have a comparative advantage. E. work in industries that do not have an absolute advantage and purchase those goods in which other countries have an absolute advantage.
A. work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries.
The expansionary monetary and fiscal policies of the 1960s resulted in A.high inflation rates and low rates of unemployment. B.high inflation rates and high rates of unemployment. C.low inflation rates and low rates of unemployment. D.low inflation rates and high rates of unemployment.
A.high inflation rates and low rates of unemployment
If the economy is producing at potential GDP, A.unemployment is at its natural rate. B.inflation in the economy is at its natural rate. C.the Phillips curve must be positively sloped. D.the short−run aggregate supply curve must be vertical.
A.unemployment is at its natural rate.
Suppose that domestic investment in Canada is 10.7% of GDP, and Canadian national savings is 13% of GDP. What is Canada's foreign investment as a percentage of GDP? A. 1.15% B. 2.3% C. 15.3% D. 23.7%
B. 2.3%
Which of the following will not have an effect on the natural rate of unemployment? A. Changes in unemployment insurance. B. Changes in monetary policy. C. Changes in demographics. D. Extended periods of high unemployment.
B. Changes in monetary policy.
How does expansionary monetary policy affect net exports? A. Expansionary monetary policy reduces exports and reduces imports. B. Expansionary monetary policy increases exports and reduces imports. C. Expansionary monetary policy increases exports and increases imports. D.Expansionary monetary policy reduces exports and increases imports.
B. Expansionary monetary policy increases exports and reduces imports.
Patrick J. Buchanan, a former presidential candidate, argues in his book on the global economy that there is a flaw in David Ricardo's theory of comparative advantage: "Classical free trade theory fails the test of common sense. According to Ricardo's law of comparative advantage. . . if America makes better computers and textiles than China does, but our advantage in computers is greater than our advantage in textiles, we should (1) focus on computers, (2) let China make textiles, and (3) trade U.S. computers for Chinese textiles . . . The doctrine begs a question. If Americans are more efficient than Chinese in making clothes . . . why surrender the more efficient American industry? Why shift to a reliance on a Chinese textile industry that will take years to catch up to where American factories are today?" According to comparative advantage, why is Buchanan's argument incorrect? A. His argument is incorrect because China does not produce textiles. B. His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage. C. His argument is incorrect because the United States textile industry is not more efficient. The U.S. textile industry produces its goods at a lower opportunity cost than in China. D.None of the above. Buchanan's argument is correct.
B. His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage.
Using the economic concept of comparative advantage, explain under what circumstances it would make sense for the United States to produce all of the T-shirts purchased in the United States. The United States should produce all of the T-shirts purchased in the United States if the U.S. could produce A. T-shirts at higher opportunity cost than other countries. B. T-shirts at lower opportunity cost than other countries. C. T-shirts at lower total cost than other countries. D. higher quality T-shirts than other countries. E. more T-shirts than other countries.
B. T-shirts at lower opportunity cost than other countries.
How would your open-economy answer change if interest rates in countries that are major trading partners of the United States also rise? A. The interest rate increase would increase the value of the dollar by less, so the decrease in aggregate demand would be more. B. The interest rate increase would not change the value of the dollar, so the decrease in aggregate demand would be less. C. The interest rate increase would increase the value of the dollar by more, so the decrease in aggregate demand would be less. D. The interest rate increase would increase the value of the dollar by more, so the decrease in aggregate demand would be more.
B. The interest rate increase would not change the value of the dollar, so the decrease in aggregate demand would be less.
Expansionary monetary policy on the part of the central bank of Japan will cause: A. an increase in interest rates in Japan and an increase in the value of the Yen relative to other currencies. B. a decrease in interest rates in Japan and a decrease in the value of the Yen relative to other currencies. C. an increase in interest rates in Japan and a decrease in the value of the Yen relative to other currencies. D. a decrease in interest rates in Japan and an increase in the value of the Yen relative to other currencies.
B. a decrease in interest rates in Japan and a decrease in the value of the Yen relative to other currencies.
Expansionary monetary policy on the part of the central bank of the United States will cause: A. a decrease in interest rates in the United States and an increase in the value of the U.S. dollar relative to other currencies. B. a decrease in interest rates in the United States and a decrease in the value of the U.S. dollar relative to other currencies. C. an increase in interest rates in the United States and an increase in the value of the U.S. dollar relative to other currencies. D. an increase in interest rates in the United States and a decrease in the value of the U.S. dollar relative to other currencies.
B. a decrease in interest rates in the United States and a decrease in the value of the U.S. dollar relative to other currencies.
Suppose the government of Mexico runs a budget deficit. This will result in: A. a decrease in interest rates in Mexico and an increase in the value of the peso relative to other currencies. B. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies. C. a decrease in interest rates in Mexico and a decrease in the value of the peso relative to other currencies. D. an increase in interest rates in Mexico and a decrease in the value of the peso relative to other currencies.
B. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies.
In an open economy, an expansionary fiscal policy on the part of the government of the United Kingdom will cause: A. a decrease in interest rates in the United Kingdom which may have a larger crowding out effect than in a closed economy. B. an increase in interest rates in the United Kingdom which may have a larger crowding out effect than in a closed economy. C. an increase in interest rates in the United Kingdom which may have a smaller crowding out effect than in a closed economy. D. an decrease in interest rates in the United Kingdom which may have a smaller crowding out effect than in a closed economy.
B. an increase in interest rates in the United Kingdom which may have a larger crowding out effect than in a closed economy.
The increase in interest rates as a result of the government of the United Kingdom running a budget deficit will: A. cause an increase in the value of the pound relative to other currencies and therefore decrease imports and decrease exports. B. cause an increase in the value of the pound relative to other currencies and therefore increase imports and decrease exports. C. cause an increase in the value of the pound relative to other currencies and therefore increase imports and increase exports. D. cause a decrease in the value of the pound relative to other currencies and therefore increase imports and decrease exports.
B. cause an increase in the value of the pound relative to other currencies and therefore increase imports and decrease exports.
The increase in interest rates as a result of the government of Russia running a budget deficit will: A. cause an increase in the value of the ruble relative to other currencies and therefore decrease imports and decrease exports. B. cause an increase in the value of the ruble relative to other currencies and therefore increase imports and decrease exports. C. cause a decrease in the value of the ruble relative to other currencies and therefore increase imports and decrease exports. D. cause an increase in the value of the ruble relative to other currencies and therefore increase imports and increase exports.
B. cause an increase in the value of the ruble relative to other currencies and therefore increase imports and decrease exports.
An increase in capital outflows from the United States will A. decrease the balance on the capital account. B. decrease the balance on the financial account. C. increase the balance on the current account. D. increase the balance on the financial account.
B. decrease the balance on the financial account.
An article in GulfNews.com noted that in September 2012 the Indian government of Prime Minister Manmohan Singh made"urgently needed reforms to reduce the fiscal deficit and attract foreign investment to help the current account deficit and growth." Lower interest rates would help India's economy by A. decreasing investment and decreasing exports. B. increasing investment and increasing exports. C. increasing investment and decreasing exports. D. decreasing investment and increasing exports.
B. increasing investment and increasing exports.
"Twin deficits" refers to a situation, where the government budget deficit A. leads to a capital account deficit. B. leads to a current account deficit. C. leads to a financial account deficit. D. leads to a balance of payment deficit.
B. leads to a current account deficit.
A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency), and________ the trade balance. A. reduces; reduces; raises B. raises; raises; reduces C. reduces; raises; reduces D. raises; reduces; reduces
B. raises; raises; reduces
Suppose the Fed pursues a policy that leads to higher interest rates in the U.S. How will this policy affect real GDP in the short run if the U.S. is an open economy? This policy A. reduces investment spending and consumption spending, both of which reduce GDP. Net exports fall which increases GDP. B. reduces investment spending, consumption spending and net exports, all of which reduce GDP. C. reduces investment spending and consumption spending, both of which reduce GDP. Net exports rise which increases GDP. D. increases investment spending, consumption spending, and net exports, all of which increase GDP.
B. reduces investment spending, consumption spending and net exports, all of which reduce GDP.
Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy. A. stronger; closed; weaker; open B. stronger; open; weaker; open C. weaker; open; weaker; open D. weaker; closed; weaker; closed
B. stronger; open; weaker; open
Which two factors do economists combine to establish the real exchange rate between two countries? A. the money supply in each country and the fixed exchange rate between the two countries B. the relative price levels in the two countries and the nominal exchange rate between the two countries' currencies C. net exports and whether there is currency appreciation or depreciation between the two countries D. the balance of payments and whether the currency of either country faces a shortage or surplus in the foreign exchange market
B. the relative price levels in the two countries and the nominal exchange rate between the two countries' currencies
Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy. A. stronger; closed; weaker; open B. weaker; closed; stronger; closed C. stronger; open; weaker; closed D. weaker; open; weaker; open
B. weaker; closed; stronger; closed
The United States produces computers and sells them to Canada. At the same time Canada produces cars and sells them to the United States. Suppose there is an appreciation in the dollar. This will cause: A. An increase in imports into the United States and an increase in exports to Canada, which will cause an increase in aggregate demand and real GDP. B. A decrease in imports into the United States and an increase in exports to Canada, which will cause an increase in aggregate demand and real GDP. C. An increase in imports into the United States and a decrease in exports to Canada, which will cause a decrease in aggregate demand and real GDP. D. A decrease in imports into the United States and a decrease in exports to Canada, which will cause a decrease in aggregate demand and real GDP.
C. An increase in imports into the United States and a decrease in exports to Canada, which will cause a decrease in aggregate demand and real GDP.
An editorial in the Wall Street Journal in 2017 makes the following observation: "When the U.S. has a current-account deficit it has to have a capital-account surplus of the same amount." Briefly explain whether you agree with this observation. A. Disagree, because the current account and the capital account are unrelated. B. Agree, because the United States must have a capital account surplus of the same size. C. Disagree, because the observation confuses the capital account with the financial account. D. Disagree, because the United States must have a capital account deficit of the same size
C. Disagree, because the observation confuses the capital account with the financial account.
Which of the following describes the importance of international trade around the world? A. France is the only high-income country that is less dependent on international trade than the U.S. B. In some smaller countries such as Belgium, imports and exports make up less than 28 percent of GDP. C. In 2019, China was the largest exporter in the world, accounting for approximately 11% of world exports. D. Japan is the only high-income country that is more dependent on international trade than the U.S. E. Rapid growth in Singapore over the past 20 years has resulted in it becoming the third largest exporter.
C. In 2019, China was the largest exporter in the world, accounting for approximately 11% of world exports.
What impact might an increase in the budget deficit have on interest rates and exchange rates? A. Interest rates increase, and exchange rates decrease. B. Interest rates and exchange rates decrease. C. Interest rates and exchange rates increase. D. Interest rates decrease, and exchange rates increase.
C. Interest rates and exchange rates increase.
Which of the following is not a main source of comparative advantage? A. External economies of scale. B.Technology. C. Internal economies of scale. D. Climate and natural resources. E. Relative abundance of labor and capital.
C. Internal economies of scale.
Which of the following is the saving and investment equation? A. Private Saving = National Income - Consumption - Taxes B. Public Saving = Taxes - Government Spending C. National Saving = Domestic Investment + Net Foreign Investment D. Domestic Investment = Private Saving + Public Saving
C. National Saving = Domestic Investment + Net Foreign Investment
In July 2021, you needed 70.9 percent more pesos to buy one U.S. dollar than you had needed in July 2011. Over the same timeperiod, the consumer price index in Mexico increased 50.5 percent and the consumer price index in the U.S. increased 20.8 percent. Are these data consistent with the theory of purchasing power parity? A. Yes, because the difference between the percentage change in the exchange rate, and the difference in the inflation rates is less than 5%. B. No, because both countries had inflation and the exchange rate rose. C. No, because the difference between the percentage change in the exchange rate, and the difference in the inflation rates is more than 5%. D. Yes, because both countries had inflation and the exchange rate rose.
C. No, because the difference between the percentage change in the exchange rate, and the difference in the inflation rates is more than 5%.
The saving and investment equation shows that A. S=I. B. net exports are always positive. C. S=I+NFL. D. the government's budget must always be balanced.
C. S=I+NFL.
Which of the following correctly states the saving and investment equation in an open economy? A. I − S = NFI B. I = S + NFI C. S = I + NFI D. S + I = NFI
C. S = I + NFI
The Economist magazine observed the following: "In Argentina, many loans were taken out in dollars: this had catastrophic consequences for borrowers once the peg collapsed." What does it mean that Argentina's "pegLOADING... collapsed"? A. Excessive capital inflow caused the value of the peso to appreciate. B. Interest rates in Argentina rose so high that borrowers could not take out loans. C. The central bank no longer had the dollar reserves to continue to buy pesos. D. The central bank was no longer able to increase the supply of pesos.
C. The central bank no longer had the dollar reserves to continue to buy pesos.
How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars? A. The exchange rate will increase. B. The exchange rate will not be affected by a change in the budget deficit. C. The exchange rate will decrease. D. The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.
C. The exchange rate will decrease.
All of the following are expected benefits of the creation of the Euro, except which? A. The creation of the Euro should reduce costs. B. Having a common currency allow consumers to buy across borders. C. The participating countries are no longer able to conduct independent monetary policies. D. The creation of the Euro would allow Western European countries to more closely integrate their economies.
C. The participating countries are no longer able to conduct independent monetary policies.
What impact does expansionary monetary policy have on the short−run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation? A. The short−run Phillips curve is not affected by expansionary monetary policy. B. The short−run Phillips curve becomes the long−run Phillips curve. C. The short−run Phillips curve shifts up. D.The short−run Phillips curve shifts down.
C. The short−run Phillips curve shifts up.
An article in the Economist observes that "China's decades of [current account] surpluses reflected the fact that for years it saved more than it invested." What does a country's current account tell us about the level of saving in the economy relative to the level of investment? Based on the saving and investment equation, A. a country with a current account surplus must be pegging its currency against that of another country. B. a country that has a current account surplus must be saving more than it is investing domestically, and vice versa. C. a country that has a current account surplus must be investing more domestically than it is saving, and vice versa. D. It is not possible to determine a country's level of saving relative to its level of investment using the current account.
C. a country that has a current account surplus must be investing more domestically than it is saving, and vice versa.
Among the main sources of comparative advantage are the following: A. climate and natural resources, relative scarcity of labor and capital, technology, external economies. B. climate and natural resources, relative abundance of labor and capital, technology, external diseconomies. C. climate and natural resources, relative abundance of labor and capital, technology, external economies. D. climate and natural resources, relative abundance of labor and capital, inefficient technology, external economies.
C. climate and natural resources, relative abundance of labor and capital, technology, external economies.
Suppose the majority of the shares of British Airways stock were sold to a firm in the United States. Assuming all else remainsconstant, this will A. increase net portfolio investment in the United States. B. decrease the balance of the U.S. current account. C. decrease the balance of the U.S. financial account. D. decrease foreign direct investment in the United States
C. decrease the balance of the U.S. financial account.
The United States was sometimes called the "World's largest debtor" because A. domestic investment in the United States remained reliant on funds from private saving in the United States. B. the United States has had a current account surplus almost every year since 1982. C. foreign investors owned more of U.S. stocks, bonds, and factories than U.S. investors owned of foreign assets. D. U.S. investors owned more of foreign assets than foreign investors owned of U.S. stocks, bonds, and factories.
C. foreign investors owned more of U.S. stocks, bonds, and factories than U.S. investors owned of foreign assets.
According to an article in the Economist: "countries with persistent current-account deficits tend to have higher real interest rates than surplus countries." What do high interest rates have to do with current account deficits? Current account deficits A. drive higher fiscal surpluses which increase interest rates. B. drive higher banking profits which increase interest rates. C. must be funded through a financial account surplus which is facilitated by higher interest rates. D. encourage higher interest rates since investment spending is higher which increases interest rates.
C. must be funded through a financial account surplus which is facilitated by higher interest rates
In an open economy, a contractionary fiscal policy will have a ________ impact on aggregate demand and, therefore, will be________ effective in slowing down an economy. A. larger; less B. smaller; more C. smaller; less D. larger; more
C. smaller; less
If workers and firms raise their inflation expectations, A.unemployment will fall. B.actual inflation will fall to match expected inflation. C.the short−run Phillips curve will shift upward. D.the short−run Phillips curve will be vertical.
C.the short−run Phillips curve will shift upward.
According to economists Robert Lucas and Thomas Sargent, the apparent short−run trade−off between unemployment and inflation in the 1950s and 1960s was the result of A.expected changes in fiscal policy. B.expected changes in monetary policy. C.unexpected changes in monetary policy. D.unexpected changes in fiscal policy.
C.unexpected changes in monetary policy.
Which of the following events would cause the supply curve in the foreign exchange market to shift? A. Changes in expectations of the future value of foreign currencies. B. Increase in foreign interest rates. C. Increased demand for foreign goods and services. D. All of the above.
D. All of the above.
Which of the following factors may explain why a country like the Netherlands is more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States? A. The Netherlands is a small country with a level of GDP that is only a small fraction of that of China or the U.S. B. Given its small size, the Netherlands must specialize in producing and exporting only a few products; it cannot produce the wide range of products that China or the U.S. can produce. C. The Netherlands must rely on imports for a large range of products. D. All of the above.
D. All of the above.
Which of the following would you expect to increase both interest rates and exchange rates? A. expansionary monetary policy B. contractionary monetary policy C. expansionary fiscal policy D. Both B and C will increase both interest rates and exchange rates.
D. Both B and C will increase both interest rates and exchange rates.
Which of the following will not have an effect on the long−run Phillips curve? A. Changes in demographics. B. Extended periods of high unemployment. C. Changes in unemployment insurance. D. Changes in monetary policy.
D. Changes in monetary policy.
An increase in expected inflation will A. shift the long−run Phillips curve to the right. B. increase real wages. C. decrease the natural rate of unemployment. D. None of the above is correct.
D. None of the above is correct.
If South Korea enters into an agreement with other countries to keep the exchange rate among their currencies fixed it is taking partin: A. a floating currency exchange-rate system. B. a managed float exchange-rate system. C. a gold standard exchange-rate system. D. a fixed exchange-rate system.
D. a fixed exchange-rate system.
An article in the New York Times quoted an economist as arguing that "global free trade and the European single market...encourage countries to specialize in sectors where they enjoy comparative advantage. Germany's [comparative advantage] is in cars and machine tools." For the author's observation to be correct, must Germany be able to produce more cars and machine tools per hour worked than do France, Italy, the United Kingdom, and Germany's other trading partners? For Germany to have a comparative advantage in a product relative to France or another country, it would have A. the same opportunity cost of producing the product as the other country. B. an absolute advantage of producing all products over the other country. C. a marginal advantage of producing the product over the other country. D. a lower opportunity cost of producing the product than the other country.
D. a lower opportunity cost of producing the product than the other country.
If Mexico allows it's currency's exchange rate to be determined by supply and demand, with occasional government intervention it is using: A. a gold standard exchange system. B. a floating currenty excahnge system. C. a fixed exchange system. D. a managed float excahnge system.
D. a managed float excahnge system.
In an open economy, an expansionary fiscal policy on the part of the government of Canada will cause: A. an increase in interest rates in Canada which may have a smaller crowding out effect than in a closed economy. B. a decrease in interest rates in Canada which may have a larger crowding out effect than in a closed economy. C. an decrease in interest rates in Canada which may have a smaller crowding out effect than in a closed economy. D. an increase in interest rates in Canada which may have a larger crowding out effect than in a closed economy.
D. an increase in interest rates in Canada which may have a larger crowding out effect than in a closed economy.
If actual inflation is less than expected inflation, actual real wages will be _________ expected real wages and unemployment will _______. A. less than; fall B. greater than; fall C. less than; rise D. greater than; rise
D. greater than; rise
Expansionary monetary policy is more effective in an open economy because A. interest rate decreases also reduce the government budget deficit, which reduces the current account deficit and increases demand. B. open market operations can be used to buy and sell foreign as well as domestic bonds. C. decreases in interest rates have an impact on foreign direct investment, encouraging the construction of factories and the purchase of stocks. D. interest rate decreases also reduce the value of the dollar, which increases net exports and further increases aggregate demand.
D. interest rate decreases also reduce the value of the dollar, which increases net exports and further increases aggregate demand.
Comparative advantage A. is determined by governments of nations across the globe. B. is independent a countries skilled and unskilled labor quantities. C. is unlikely to change, once it has been defined. D. may change as time passes and circumstances change
D. may change as time passes and circumstances change
If the United States is a "net lender" abroad, ________. (Assume that the capital account is zero and net transfers are zero.) A. net foreign investment must be negative B. net capital flows must be positive C. the United States must be exporting less than it is importing D. national saving is greater than domestic investment
D. national saving is greater than domestic investment
According to the short−run Phillips curve, the unemployment rate and the inflation rate are A. unrelated. B. positively related. C. unaffected by monetary policy. D. negatively related.
D. negatively related.
Although international trade leads to substantial net benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from trade? A. businesses that use inputs and products that are being imported B. businesses outside the import sectors C. consumers D. the workers and companies in the industries that compete with the imports
D. the workers and companies in the industries that compete with the imports
Historically, in order to rapidly expand the money supply, a country needed to abandon the gold standard because A. a rapid increase in the money supply would have sharply raised the price of gold. B. under the gold standard a country was required to keep a fixed money supply. C. any changes in monetary policy needed to be approved by all other countries under the gold standard. D. under the gold standard the size of the money supply was dependent on the amount of gold that was available in the country and it was not possible to rapidly increase the availability of gold.
D. under the gold standard the size of the money supply was dependent on the amount of gold that was available in the country and it was not possible to rapidly increase the availability of gold.
ReviewQuiz:Ch.17 Review (Copy) Question 12, Concept: Changes in Monetary Policy Test Score: 75%, 12 of 16 points Points: 1 of 1 Close Which of the following will not have an effect on the natural rate of unemployment? A.Extended periods of high unemployment. B.Changes in demographics. C.Changes in unemployment insurance. D.Changes in monetary policy.
D.Changes in monetary policy.
Refer to the figure. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure, and the unemployment rate at A is the natural rate. If the economy was to move to point C, which of the following must be true? A.Aggregate demand must have decreased. B.The Fed conducted contractionary policy to cause the move. C.The economy is producing a level of GDP equal to potential GDP. D.Equilibrium GDP at point C must be above potential GDP.
D.Equilibrium GDP at point C must be above potential GDP.
If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy, which of the following would you expect to see? A.The Fed will follow deflationary monetary policies. B.The rate of inflation will fall as Fed tries to reduce the unemployment rate. C.The Fed will reduce the natural rate of unemployment. D.The Fed will follow inflationary monetary policies
D.The Fed will follow inflationary monetary policies
If the United States were to stop trading goods and services with other countries, which of the following U.S. industries would be likely to see their sales decline the most? A. Most manufacturing industries. B. Some service industries. C. Most of the agriculture industry. D. Only A and B. E. All of the above. F. None of the above.
E. All of the above.
Do you agree with Obama's statement? Briefly explain. A. All consumers would likely agree with Obama. B. All producers would likely agree with Obama. C. Consumers who prefer cheaper goods would likely agree with Obama. D. Producers in industries in which the U.S. has a comparative advantage would likely agree with Obama. E. Producers in industries in which the U.S. does not have a comparative advantage would likely agree with Obama.
E. Producers in industries in which the U.S. does not have a comparative advantage would likely agree with Obama.
Based on the following information, what is the balance on the current account? Exports of goods and services = $12 billion Imports of goods and services= $14 billion Net income on investments = −$4 billion Net transfers = −$1 billion Increase in foreign holdings of assets in the United States = $6 billion Increase in U.S. holdings of assets in foreign countries = $3 billion a. $-7 billion b. $3 billion c. $-2 billion d. $1 billion
a. $-7 billion
Suppose that Federal Reserve policy leads to higher interest rates in the U.S. If the U.S. is a closed economy, in the short run, real GDP will __________ If the U.S. is an open economy, real GDP will ________ by ________
decrease decrease ; more than in a closed economy
If national saving declines and domestic investment does not change, it must be true that net foreign investment has _____
decreased
How is the U.S. economy affected by international trade? U.S. consumers buy __________ quantities of goods and services produced in other countries. At the same time, U.S. businesses sell _____________ quantities of goods and services to consumers in other countries.
increasing ; increasing
Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at far below their cost of production. In addition, China decides to bar all imports from the United States. The dollars that the United States pays to import Chinese goods are left in banks in China. a. The strategy will _______ the standard of living in China. b. The strategy will _______ the standard of living in the U.S.
lower ; raise
Suppose the federal government decreases spending without also decreasing taxes. In a closed economy setting, this policy will ______ real GDP and _______ the price level in the short run. In an open economy setting, the effect of government fiscal policies will ______. For example, in an open economy, expansionary fiscal policies affect interest rates and also exchange rates in the same direction and the changes in the latter create a _____ crowding out effect.
reduce ; lower be dampened ; larger
Suppose the federal government decreases spending without also decreasing taxes. In a closed economy setting, this policy will ______ real GDP and lower the price level in the short run. In an open economy setting, the effect of government fiscal policies will ________. For example, in an open economy, expansionary fiscal policies affect interest rates and also exchange rates in the same direction and the changes in the latter create a ______ crowding out effect.
reduce ; lower ; be dampened ; larger
